A Brief History of PPG Industries' Returns

Despite constant attempts by analysts and the media to complicate the basics of investing, there are only three ways a stock can create value for shareholders:

Dividends.

Earnings growth.

Changes in valuation multiples.

In this series, we drill down on one company's returns to see how each of those three has played a role over the past decade. Step on up, PPG Industries (NYS: PPG) .

PPG shares returned 116% over the past decade. How'd they get there?

Dividend provided about half the return. Without dividends, shares returned 57% over the last 10 years.

Earnings growth was strong over the period. PPG's normalized earnings per share grew at an average rate of 7.6% a year from 2001 until today. That's above the market average, and on par with DuPont (NYS: DD) and Eastman Chemical (NYS: EMN) .

Now have a look at PPG's valuation multiple:

Source: S&P Capital IQ.

PPG's P/E ratio has been all over the map. It's currently down about 30% from where it stood 10 years ago. That's prevented part of the company's earnings growth from turning into shareholder returns. This isn't surprising: At 18 times earnings in 2001, PPG shares weren't exactly cheap. Any bump in the road -- say, the biggest global recession in decades -- was bound to compress the company's valuation, dinging shareholder returns even as earnings grew at a healthy clip, which is exactly what happened.

This stuff may seem basic, but it's worth paying attention to. It's important to know not only how much a stock has returned, but where those returns came from. Sometimes earnings grow, but the market isn't willing to pay as much for those earnings. Sometimes earnings fall, but the market bids shares higher anyway. Sometimes both earnings and earnings multiples stay flat, but a company generates returns through dividends. Sometimes everything works together, and returns surge. Sometimes nothing works and they crash. All tell a different story about the state of a company. Not knowing why something happened can be just as dangerous as not knowing that something happened at all.